Steve McKnight: “Here’s My 5 Cents Worth…”
It’s been reported that it costs the Australian government six cents to make a five-cent coin, meaning the little silver Echidna is now on death row.
RIP little fella. Oh how I remember when you used to buy something meaningful at the lolly shop, or when you were the preferred partner over your one and two-cent copper cousins.
Naturally, it doesn’t make fiscal sense to have money that costs more to make than it’s worth, but why stop at the five-cent coin? A negatively geared property is in the same boat, isn’t it? After all, it costs more to hold than the income it brings in, meaning that it is really only of use to collectors who hope it will appreciate in value.
No, wait… isn’t something that costs more than it’s worth a good thing because you get a tax offset?
Argh! So many questions!
Getting back to basics, when something costs more than it is worth, it is called a loss leader and only makes sense to hold if it’s capital appreciation exceeds its cost of acquisition or production. The five-cent coin might be worth more than five cents to a collector, but to the government, there is no benefit in pursuing loss leading currency in the long term.
As for negative gearing, it might be on death row too. The court of public opinion jury is out at the moment, pending who will get elected in July. If the Liberals are re-elected then the party rolls on, but Labor has earmarked it for execution, at least in its current format.
At a business forum, I was recently reminded that change in government policy affects three groups: those that get screwed, those who watch the screwing, and those that do the screwing. I wonder, which camp will you be in as things change in the months ahead?
Choose wisely.
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Negative gearing makes no business sense in the lo g term.
So better to have pain now then huge pain in future
I’m feeling the Bern! :-)
Good luck convincing the rest of the country.
I made heaps of money out of negative gearing,despite being on a low salary. Property guru after property guru, keep condemning negative gearing. I dont get it. Is that why Steve is leaving Oz…cos if NG gets the flick he wont be able to hold a seminar to rubbish it? It will take the thunder out of other gurus seminars….only lightning left,which has a brief duration.
I liken property gurus who condemn NG, as being like members of the US Repulican party. They cant handle Donald Trump or anyone who calls a spade a spade. They call a spade a gardening implement that is better not used because is does not work all that well. A spade becomes a nebulous concept.Cave men used things that looked like gardening implements. With block sizes getting around the 300sqm mark, there is no use for spades. Why grow vegetation when you can thwart/mitigate global warming by using solar panels.Besides you can use artificial grass and plastic plants for effect. Society is full of weirdos
No Lindsay, that’s not why I’m leaving Australia for the US, and I think you’ve gone quite off topic towards the end of your post, but anyway…
Negative gearing is a strategy that works well, and makes money, when property prices increase above the income loss. That’s an undisputed fact. And anyone looking to buy metro real estate on a 80% LVR or more will find their property will most likely be negatively geared.
My issue with the strategy is that people don’t understand how they are making a loss now for a potential gain tomorrow. Therefore, the strategy is not well understood, and hence investors accept more risk than they realise.
– Steve
Generally negative gearing makes little sense, unless the capital gain you make is more than the income losses you incur.
In Australia it has worked over the last twenty years because of Australia’s loose lending standards, plunging interest rates, and Baby Boomers panicking about their retirement.
This will now stop as the Baby Boomers retire and they all try to sell their properties at the same time.
Negative gearing fails as a strategy where property prices remain stagnant or only rise marginally, and that is where Australia is headed over the next twenty plus years.
Property does not always go up, as the Japanese very well know.